RBI and Commercial Banking: By: Gaurang Badheka FSM, Sem - 3

RBI and Commercial
Banking
By : Gaurang Badheka
FSM, Sem - 3
Reserve Bank of India
• It is a central bank of India
• Established on 1 April 1935 under the Reserve
Bank of India Act.
• Its head quarter is in Mumbai
• Its present governor is D.Subbarao.
• It has 22 regional offices, mostly in the state
capital
• Website : http://www.rbi.org.in
Brief history
• It was set up on the recommendations of
Hilton young commission
• It was started as a shareholders bank with a
paid up capital of Rs.5 crore.
• Initially it was located in Kolkata.
• It moved to Mumbai in 1937
• Initially it was privately owned.
Brief history
• Since nationalisation in 1949, RBI is fully
owned by the government of India.
• Its first governor was Sir Osborne A. Smith
from April 1, 1935 to June 30,1937.
• On June 27, 2006 the government of India
reconstituted the central board of directors of
RBI with 13 members, including Azim Premji
and Kumar Mangalm Birla
Journey of 75 years
• 1935 – operations begin.
• 1949 – nationalisation of RBI. BR Act passed.
• 1950 – five year planning started.
• 1966 – cooperative banks comes under RBI.
• 1969 – nationalisation of 14 major banks, more 6 in 1980
• 1973 – major amendment in FERA.
• 1974 – priority sector landing targets set.
• 1975 – RRBs set up.
• 1985 – financial market reforms begin.
• 1991 – India faced BOP crisis.
• 1993 – exchange rate becomes market determined.
Journey of 75 years
• 1994 – Board for Financial Supervision set up.
• 1997 – ad hoc treasury bill phased out.
• 1997 – regulation of NBFC strengthened.
• 2000 – FEMA replaces FERA.
• 2002 – CCIL commence clearing & sett. In G-Sec.
• 2004 – RTGS commenced.
• 2005 – focus on financial inclusion.
• 2006 – RBI empowered to regulate money, forex, G-sec and
gold related securities markets.
• 2008/9 – pro-active efforts to minimise impacts of global
financial crisis.
Preamble
• The preamble of the Reserve Bank of India
describes the basic functions of RBI as:
“ … to regulate the issue of bank note and
keeping of reserve with a view to securing
monetary stability in India and generally to
operate the currency and credit system of
the country to its advantage.”
Organisation of RBI
• Central board
• Local board
Central board
• The reserve Bank’s affairs are governed by
Central board of Directors. The Board is
appointed by Govt. of India as per RBI Act.
• Appointment / nomination is for the period of
four years.
• Constitution:
– Official directors:
• Full time: governor and not more than four deputy
directors.
Central board
– Non official directors:
• Nominated by government: ten directors from various
field and one government official.
• Other : four directors – one each from four local board.
Local board
• One each for the four regions of the country
in Mumbai, Chennai, Kolkata and New Delhi.
• Membership :
– Consist of five members each
– Appointed by the central government
– For the term of four years.
Organisation structure of RBI
• Governor
• Deputy Governors
• Executive Directors
• Principal Chief General Manager
• Chief General Managers
• General Managers
• Deputy General Manager
• Asst. General Managers
• Managers
• Asst. Managers
• Support staff
RBI is made up of:
• 26 departments – focus on policy issues and functional areas
• 26 regional offices and branches.
• Training centers: RBI Staff college – Chennai, the College for
Agri. Banking at Pune and Zonal training centers.
• Research Institutes: NIBM at Pune, IGIDR at Mumbai and
IDRBT in Hyderabad.
• Subsidiaries: fully owned like NHB, DICGC and BRBNMPL. Also
has a major stake in NABARD.
Departments of RBI
• Markets:
– Monetary Policy Department
– Financial Market Department
– Internal Debt Mgt. Department
– Dept. for external investments and operations
Departments of RBI
• Regulation and Supervision
– Dept. of Banking operation and Development
– Dept. of Banking supervision
– Dept of non banking supervision
– Urban Banks dept.
– Rural planning and Credit Dept.
– Foreign Exchange Dept.
Departments of RBI
• Research
– Dept. of Economic Analysis and Policy
– Dept. of Statistics and Information Mgt.
• Service
– Dept. of Government Bank account
– Dept. of Currency Management
– Dept. of Payment and Settlement System
– Customer Service Dept.
Departments of RBI
• Support
– Dept. of Admn. and personnel Mgt.
– HRD Dept.
– Dept. of communication
– Dept. of Expenditure and budgetary control.
– Dept. of Information Technology
– Premises Department
– Secretary’s Dept.
– Rajbhasha Dept.
– Legal Dept.
– Inspection Dept.
Functions of RBI
• Monetary authority
• Regulator and supervisor of financial
system
• Manager of foreign exchange
• Issuer of currency
• Developmental role
Formulate monetary policy
• Objective: maintain price stability and ensuring
adequate flow of credit in the economy
• What RBI does:

– It formulates, implements and monitors the
monetary policy
– Instruments : qualitative and quantitative.
Tools
• Bank rate: it is also known as discount rate. It also
includes repo rate.
• Liquidity Adjustment Facility ( LAF)
• Open market operations: buying and selling
government securities.
• Selective credit control
• Variable reserve ratios like CRR and SLR, refinance
facility.
Regulate and supervise FS
• Objective: to maintain public confidence in the
system, protects depositor’s interest & provide cost
effective banking service to public.
• What RBI does…..

– Prescribes broad parameter for banking operation within
which the country’s banking and financial system works.
– The Reserve bank of India performs this function under
the guidance of the Board for Financial Supervision ( BFS)
– Lander of last resort
Manager of Foreign Exchange
• Objective: to facilitate external trade and
payment and promote orderly development and
maintain FX market in India.

– It acts as a custodian and manages Foreign
Exchange Management Act, 1999.
– RBI buys and sells foreign currency to maintain
the exchange rate of Indian rupee v/s foreign
currencies.
Issue of currency
• Objective: To ensure adequate quantity of
supplies of currency notes and coins of good
quality.
– Maintain and manage the aggregate money supply in the
system
– Issues new currency and destroys currency and coins not
fit for the circulation.
– Ensure the security of the currency.
– RBI’s clean note policy
Developmental role
• Objective: to develop quality and quantity of
banking system of India.

– Performs a wide range of promotional functions
to support national objective.
– To establish financial institutions of national
importance. For example NABARD, IDBI, etc.
Subsidiaries
• Fully owned:
– Natioanal Housing Bank ( NHB ), Deposit Insurance
and Credit Guarantee Corp. of India ( DICGC ),
Bharatiya Reserve Bank Note Mudran Private
Limited ( BRBNMPL )
• Major stake
– National Bank for Agriculture and Rural
Development ( NABARD ), recently divested stake
of SBI to GOI.
– Also set up training institutes.
Related functions
• Bankers to the government
• Bankers to the banks
• RBI also regulates opening/installation of ATM
• Fresh currency notes for ATM
• RBI regulates the opening of branches.
• It ensures that all banks / NBFC to follow KYC
guidelines.
• Collection and publishing of data.
RBI for economic development
• Development of banking system
• Development of financial institutions
• Development of backward areas
• Economic stability
• Economic growth
• Proper interest rate structure
• other
Current focus of RBI
Some of the initiatives taken by RBI include:
• Restructuring of the system of bank inspections.

• Introduction of off-site surveillance.
• Strengthening of the role of statutory auditors.
• Strengthening of the internal defences of supervised
institutions.
• Supervision of financial institutions.
• Consolidated accounting.
• Legal issues in bank frauds.
• Divergence in assessments of non-performing assets
and
• Supervisory rating model for banks.
Challenges to RBI
• Maintaining adequate money supply
• Increasing financial literacy
• Reforming financial system
• Maintaining right balance between regulations and
liberalisation
• Restructuring Public sector banks
• Untapped rural India
• Governance in Banking system
• Innovation in the banking system
Important information source
• Weekly Statistical Supplement---------- www.wss.rbi.org.in
• RBI Bulletin---------------------------------- www.bulletin.rbi.org.in
• Monetary and Credit Policy-------------- www.cpolicy.rbi.org.in
• RBI Notifications--------------------------- www.notifics.rbi.org.in
• RBI Press Release-------------------------www.pr.rbi.org.in

• RBI Speeches---------------------------www.speeches.rbi.org.in
• RBI Annual Report------------------ www.annualreport.rbi.org.in
• Monetary and Credit Information Review--www.mcir.rbi.org.in

• Report on Trend & Progress of Banking In India-------
www.bankreport.rbi.org

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RBI and Commercial

• What RBI does:

• What RBI does…..

• What RBI does…..

• What RBI does…..

• Restructuring of the system of bank inspections.

• RBI Bulletin---------------------------------- www.bulletin.rbi.org.in

• Monetary and Credit Policy-------------- www.cpolicy.rbi.org.in

• RBI Notifications--------------------------- www.notifics.rbi.org.in

• RBI Press Release-------------------------www.pr.rbi.org.in

• Monetary and Credit Information Review--www.mcir.rbi.org.in

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